Senate bill, House measures offered on deposit insurance

CQ News

Senate bill, House measures offered on deposit insurance

By Mark Schoeff Jr., CQ

Lawmakers introduced a bipartisan Senate bill and House companion legislation Wednesday that would raise the federal deposit insurance limit for some bank accounts, moves that could reignite the issue in both chambers.

House Financial Services Chairman French Hill, R-Ark., on Wednesday also highlighted several bills that members of the panel have introduced this week that would change deposit insurance rules.

Sen. Bill Hagerty, R-Tenn., is sponsoring the Senate draft measure, which would direct the Federal Deposit Insurance Corporation and the National Credit Union Association to establish a new level of insurance between $250,000 and $5 million for transaction accounts. Those include payroll and other non-interest bearing accounts used by small businesses.

Hagerty said the bill targets deposit protection for local business at small and mid-size "Main Street" banks, a sector that was hurt during a failure of several regional banks three years ago.

"This bipartisan, bicameral bill advances the Administration's priority of preserving the central role of regional and community banks in the financial system of the future," Hagerty said in a press release. "It's narrowly targeted to address a very specific concern that manifested itself in the events surrounding the collapse of Silicon Valley bank - a run on non-interest bearing transaction accounts typically used to make payrolls by small businesses that are very important customers for our local and regional banks."

The bill is co-sponsored by Sens. Angela Alsobrooks, D-Md.; Catherine Cortez Masto, D-Nev.; Ruben Gallego, D-Ariz.; Jim Banks, R-Ind.; and Cindy Hyde-Smith, R-Miss. Hagerty and the bill's co-sponsors, except Hyde-Smith, are members of the Senate Banking Committee.

"Responsibly raising the deposit insurance threshold will protect employees and businesses in times of crisis and strengthen our overall financial system," Alsobrooks said in the same press release.

Rep. Frank D. Lucas, R-Okla., introduced this week a draft House companion bill to the Hagerty-Alsobrooks legislation.

"The Main Street Depositor Protection Act ensures banks of all sizes continue to play a fundamental role in driving economic growth in their communities," Lucas, a member of the House Financial Services Committee, said in his own press release.

Hill hasn't embraced deposit insurance changes as big as those outlined in the Hagerty and Lucas bills, which could raise the insurance level substantially from the current $250,000 per retail depositor.

But in a separate announcement on Wednesday, Hill highlighted four bills introduced this week that are sponsored by Financial Services members. In addition to Lucas's bill, he listed:

• A draft bill sponsored by Financial Institutions Subcommittee Chairman Andy Barr, R-Ky., that would direct the FDIC and NCUA to establish emergency transaction account guarantee programs. The measure would allow the agencies to ensure fully the deposits of all insured depository institutions that are maintained in non-interest-bearing transaction accounts during a banking emergency.
• A draft bill sponsored by Oversight and Investigations Subcommittee Chairman Dan Meuser, R-Pa., that would amend the Federal Deposit Insurance Act to update the inflation adjustment for insured accounts.
• A draft bill sponsored by Rep. Marlin Stutzman, R-Ind., that would require the FDIC and NCUA to analyze insurance coverage on transaction accounts.

"As Congress considers these and other proposals, the Committee will continue to work in a data-driven manner," Hill said in a press release. "Our guiding principles are to ensure stability of the banking system, maintain depositor confidence, fairly apportion costs, enforce market discipline, and reduce moral hazard."

Hill and other committee Republicans sent a Dec. 15 letter to the FDIC seeking data on deposit insurance and the estimated increase in bank assessments required to pay for increased insurance coverage.

The FDIC answered the letter later in the month, saying it doesn't have the ability to accurately delineate between interest-bearing and non-interest bearing accounts or whether they are held by individuals or corporations. Estimates on the impact of legislative proposals to raise deposit limits "are subject to considerable uncertainty," the agency said.